Global Insights on Lego, Essay Example

Introduction

In 2005, Lego’s brand became disconnected with customers, as Billund (2006) reports. The company tried to focus on expanding to new, unknown markets, instead of focusing on serving existing, loyal customers. The new leader: Jorgen Vig Knudstorp to create a strategy for sustainable growth. According to Billund (2006), the strategy was successful, and the company got “back on track” by the first half of 2006. The below essay is designed to analyze Lego’s strategy in the past eight years, in particular focus on connecting with global customers, increasing brand popularity, and increasing market share.

Company Background

According to the company’s progress report (Lego, 2012, p. 8), “2012 marks the eighth consecutive year of growth for the LEGO Group, with sales of LEGO products growing considerably all over the world”. The company has a self-reported 8.6 percent global makret share, and is present in Denmark (headquarters), Germany, China, the USA, Mexico, Hungary, and the Czech Republic. On a global scale, the company employs more than 12.000 people (Lego, 2012). From 2010 to 2012, the company has managed to increase its revenue and operating profit, while operating expenses slightly increased, too. By moving production mainly to Asian countries, expenses were reduced, and the company could increase the amount to be spent on developing new products, branding the firm, and nurturing customer loyalty. 2

Lego on a Global Market

Shultz & Hatch (2003) state that “The LEGO Company has made an ongoing effort to find a balance between global coherence and local adaptation” (p. 21). This means that while the company does focus on expanding its business, it also ensures that local loyal customers are served adequately. Oliver, Samakh, & Heckmann (2007) state that the main problem of Lego was located in its product development and supply chain management. First of all: the management did not listen to the market. While Matel and other toymakers were making profits by featuring popular movie or TV characters, – even after adding more products to the repertoire – the company was unable to increase its profits and market share. The main reason for this was that the creators did not listen to the target market: boys aged 2-9. They operated at a high cost, and failed to take advantage of the global workforce. Finally, the supply chain of Lego was completely inefficient and did not benefit either the company or the customer. At the point when the company realized that it was making a loss, there were more than 11.000 suppliers registered, according to  Oliver, Samakh, & Heckmann (2007).  The ineffective and unorganized sourcing strategy led to increased waste and reduced productivity. As a consequence, operational costs increased, profits dropped, and in many cases the company was left with unused material. In addition, the distribution and manufacturing processes were not aligned with customer demand.

When Lego decided to go global, it did so in order to increase its market share, brand recognition, and profits. Going global happened on two different levels: the company started to create a campaign that focused on the target customer: the end user of Lego on a global scale, and it moved its production to strategic global locations, completely redesigning the supply chain, and reducing both manufacturing and distribution expenses. In 2001, according to the OP Gave Bank (2002), sales to Asia, Australia, and Africa only accounted for less than ten percent of the total revenue. Initially, the company failed to recognize one important market with a growing population and an increasing number of target customers: Asia. Through establishing working relationships with potential partners, and sponsoring global projects, such as WWF, the company has successfully increased brand awareness worldwide. Further, it has created a sustainable supply chain internal code of conduct (Lego, 2012) that focuses on providing fair working conditions for workers in Asia, in particular China, and ensuring that the reputation of the company remains intact.

According to the company’s 2013 Annual Report (2014, p. 7),  “ the large, US, UK, and Central- and Northern European markets achieved healthy single digit growth rates, whereas markets like France, Spain, Russia, and China grew double digits”. This indicates that the global strategy of the company is successful, and delivers increased revenue, as well as profits.

The Factors of Lego’s Success with Global Strategy Development

Social Factors

Paul (2011) highlights one important success feature in Lego’s global strategy: engagement and interaction with customers on a global scale. They did not only communicate with customers, but they also built communities around the brand worldwide. According to Paul (2011, p. 2), “Currently, there are about a dozen Certified Professionals worldwide. “They come to us with a business plan, and we grant them the right to use the logo, and then we stimulate the long tail,”. Further, there are now Lego ambassadors all over the world hosting events where families can re-discover human interaction through play. As Paul (2011, p. 2) confirms: “LEGO drives loyalty by creating targeted experiences for its different consumer groups”.

The company has developed a meaningful message that all target customers around the world can relate to. This is extremely important for branding on a global scale. The current mission statement of the company, stated on their Progress Report is as follows: “It is our mission to ‘Inspire and develop the builders of tomorrow’” (Lego, 2012, p. 7). This message is reinforced through marketing communication, events, even community and company-sponsored videos. The company currently has (as of 2012) 3.4 million likes on Facebook, and received 25 million YouTube videos. There are also  4.6 million Lego Club members worldwide. This indicates that the message created by the company and the brand image is suitable for engaging with both existing and new customers. The company has also created the “Capital of Children” in Denmark, Billund (Lego, 2012), where people and children around the world can embrace creativity.

Economic Factors

The growth of sales in Asia, in particular in China shows that the strategy of Lego works independent on culture. The management of the company has realized that the increasing spending power of Chinese parents creates an opportunity for market entry. In 2005, some of the manufacturing process was moved to Hungary and the Czech Republic. This reduced production costs, and helped redesigning the supply chain: as  (Oliver, Samakh, & Heckmann, p. 10) states: “A plant in Eastern Europe would get products to European store shelves in three to four days”, and the company worked on moving production closer to customers. The establishment of production units in China, for example has saved a substantial amount of money on distribution, and made the supply chain more cost-effective.

Legal Factors

The company pays attention to creating policies and strategies that make the company’s operation abroad sustainable and ethical. As one of Lego’s main promises (Lego, 2012) is to pioneer safety, it is evident that compliance has a high priority within the organization. As the Progress Report (Lego, 2012, p. 30) confirms: “Using the highest quality and safest materials for our products will always be first priority”. The company is also compliant with the EU Toy Safety Directive of 2013 and embraces a safety culture at workplace.

Ethical Factors (Corporate Social Responsibility)

Ethical guidelines of operation are extremely important for maintaining a positive brand image and reputation on a global scale. Lego’s efforts to reduce CO2 emissions, to improve sustainability in general, and to comply with the 10 principles of the UN Global Compact (signed in 2003) make the organization appear responsible for the social and natural environment alike. They are collaborating with UNESCO in various programs, such as the “Strengthening the Engagement of the Private Sector in Education”, participate in the Innovative Learning Environments Programme of OECD, and are members of the “Global Business Coalition for Education” (Lego, 2012,  p. 43). It has already reduced packaging, and sponsors research for making raw materials more sustainable. Indeed, at least 75 percent of packaging used for Lego boxes was recycled in 2011. Lego also helps building a wind farm through a €400 million investment.

Political Factors

Remaining compliant with global and national work safety and rights regulations is also important for Lego to maintain its brand image. The company complies with all health and safety regulations, and has already reduced work-related accidents from 2.1 to 1.9 accidents per one million working hours. It complies with gender and cultural diversity regulations, and has its internal policies to maintain the rights of all employees. The company works in collaboration with regulators and policymakers on an international and national level in order to achieve a hundred percent compliance.

Discussion

In global expansion strategies, companies need to consider their business environment. As the OP Gave Bank (2003, p. 23) confirms: the microenvironment and macroenvironment is extremely important, as it “defines all the external and internal factors that may undermine a company’s successful existence”. The environment consists of different aspects covered above: natural, technological, political, cultural, economic, and demographic. Ignoring any of the above would result in decreased capability of the company to succeed in entering a new marketplace.

Conclusion

Lego’s decision to move to global markets and utilize international marketing strategies, such as Facebook and YouTube, while “bringing products closer to customers” has produced continuous growth of profits in the past eight years. Creating local hubs and online communities around the product has strengthened the reputation of the firm, and allowed it to successfully communicate the brand vision and mission on various channels. Corporate social responsibility campaigns had  great role in maintaining the reputation of the organization. Ensuring that customers can relate to the product and the brand personality was the key to success. The only thing that Lego could have done differently is that the company should have moved into Asia and expanded its operations worldwide faster. This way, they would today benefit from an even higher competitive advantage and brand recognition globally. In order to continue with its global expansion, the company will need to keep on engaging with customers and understanding the needs of various markets, so they can match the product development strategies to the demand.

References

Billund, N. (2006) Lego’s turnaround. Picking up the pieces. The Economist. Oct 26^th 2006.

Lego. (2012) Progress Report. Retrieved from http://aboutus.lego.com/en-gb/progress-report

Lego. (2014) Annual Report 2013. Retrieved from http://aboutus.lego.com/en-us/lego-group/annual-report

Oliver, K., Samakh, E. & Heckmann, P. (2007) Rebuilding Lego, Brick by Brick. Strategy & Business. Issue 48. Autumn, 2007.

Paul, L. (2011) Through engagement and interaction, the LEGO Group nurtures loyalty among consumers. Bloomberg Businessweek Research Services. July 2011.

Shultz, M. & Hatch, M. (2003) The Cycles of Corporate Branding: The Case of the LEGO Company. California Management Review. Vol. 46, NO. 1 Fall 2003